CFPB Backs Illinois’ Efforts to Combat Discriminatory Appraisals
teh consumer Financial Protection Bureau (CFPB) has voiced its support for proposed rule changes in Illinois aimed at preventing discriminatory appraisals.These changes, submitted by the Illinois Department of Financial and professional Regulation (IDFPR), seek to strengthen the state’s Community Reinvestment Act (CRA) regulations.
CFPB’s Stance on Appraisal Bias
the CFPB’s involvement stems from its authority to interpret and enforce the Equal Credit Opportunity Act (ECOA). The bureau’s recent comment to the Illinois Joint Committee on Administrative Rules underscores its commitment to ensuring fair lending practices.
The proposed changes target specific sections of the Illinois Administrative code:
- 38 IAC 345.280(c)(1)(A) (Bank Community Reinvestment)
- 38 IAC 185.280(c)(1)(A) (Credit Union Community Reinvestment)
- 38 IAC 1055.240(c)(1) (Mortgage Community Reinvestment Act)
these provisions address lenders who rely on or give force or effect to discriminatory appraisals to deny loan applications where the covered financial institution knew or should have known of the discrimination.
The CFPB asserts that these provisions accurately reflect ECOA’s requirements.
Legal Foundation and Joint Statements
the CFPB, in collaboration with the U.S. Department of Justice, has previously stated that a lender violates both the [fair Housing Act (FHA)] and ECOA if it relies on an appraisal that it knows or should know to be discriminatory.
Even beyond the appraisal context, an entity violates the FHA and ECOA if it enables, gives force to, or participates in a course of conduct that it knows or should know to be discriminatory.
CFPB and U.S. Department of Justice
This stance emphasizes that lenders have a responsibility to avoid perpetuating discrimination, even if it originates from an appraisal.
Truth in Lending Act (TILA) and Appraisal Independence
The CFPB clarifies that the Truth in Lending Act’s (TILA) Appraisal Independence Rule does not conflict with civil rights laws.Lenders are permitted to:
Ask an appraiser to. . . [c]onsider additional, appropriate property information, including the consideration of additional comparable properties to make or support an appraisal.
Correct errors in the appraisal report.
Obtain[] multiple valuations for the consumer’s principal dwelling to select the most reliable valuation.
- Take
action permitted or required by applicable Federal or state statute, regulation, or agency guidance,
such as not relying on a biased appraisal.
did you know? The appraisal Subcommittee of the Federal Financial Institutions Examination Council, where the CFPB is represented, has held a series of hearings on appraisal bias as April 1, 2022.
The Importance of Fair Appraisals
The CFPB stresses the meaning of accurate home valuations, noting that owning a home is one of the most effective ways to build intergenerational wealth.
Biased appraisals can exacerbate racial inequities and distort the housing market.
Pro Tip: Homeowners who suspect appraisal bias should gather comparable sales data and challenge the appraisal through their lender or by filing a complaint with the CFPB.
Illinois’ Role and Future Collaboration
The CFPB recognizes the critical role states play in overseeing appraisals and promoting reinvestment. By adopting these proposed provisions, Illinois would align with existing legal standards and utilize its tools to ensure a fair marketplace.
The CFPB welcomes the opportunity to collaborate with Illinois in the future.
